Inflation Resource Center | Lord Abbett

 

Inflation Resource Center

In today's market environment, many investors are focused on the potential investment implications of rising inflation. This Resource Center provides thoughtful insights and potential solutions for a number of situation-based outcomes.

 

 

 

 

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2.46%

Current 5-Year Forward Inflation Rate*

2.89%

Current 10 Year Treasury Rate*

*Source: FRED. Data as of 04/29/2022.

0.43%

Real Rate of Return

0.25%

Current Fed Funds Rate

10-Year U.S. Treasury Yield Remains Below Inflation Expectations

Treasury investors are not getting compensated for inflation risk

Bar Chart

Source: Bloomberg. Data as of 12/31/2021. Inflation expectations as measured by the 10-year Zero-Coupon Inflation Swap. An Inflation Swap is a derivative security in which inflation risk can be transferred from one party seeking to hedge their inflation risk ("Party A") to a counterparty who believes inflation will rise (Party B"). The two parties agree to a fixed rate of exchange and depending upon the measure of inflation (inflation index) compared to the agreed upon fixed rate, Party B nets the difference to or from Party A. Party B profits if inflation rises above the fixed rate and Party A profits if inflation remains below the fixed rate. The historical data shown in the chart above are for illustrative purposes only and do not represent any specific portfolio managed by Lord Abbett or any particular investment. Past performance is no guarantee of future results.

Traditional Investment Vehicles Show Real Rates of Return Being Negative

 

Year

6-month CD1

Federal Tax Rate2

After-tax Return3

Inflation4

Real Rate of Return5

Value of $1,0006

2011

0.78%

22%

0.61%

3.00%

-2.39%

$976

2012

0.39%

22%

0.30%

1.70%

-1.40%

$962

2013

0.27%

22%

0.21%

1.50%

-1.29%

$950

2014

0.43%

22%

0.34%

0.80%

-0.46%

$946

2015

0.89%

22%

0.69%

0.70%

-0.01%

$946

2016

1.27%

22%

0.99%

2.10%

-1.11%

$935

2017

1.82%

22%

1.42%

2.10%

-0.68%

$929

2018

2.82%

22%

2.20%

1.90%

0.30%

$931

2019

1.79%

22%

1.40%

2.30%

-0.90%

$923

2020

0.22%

22%

0.17%

1.40%

-1.23%

$912

Average

1.06%

22%

0.83%

1.75%

-0.92%

N/A

Source: Bloomberg. Data as of 12/31/2020. 6-month CD Rate represented by Bloomberg CD 6-month Index. Past performance is no guarantee of future results. "CD" refers to Certificate of Deposit, which is an investment vehicle typically offered by banks and credit unions that provides an interest rate premium in exchange for investing for a pre-determined period of time. The table above assumes a 22% Federal Tax Rate. The information provided would be different for individuals in different tax brackets. For illustrative purposes only and does not represent any specific portfolio managed by Lord Abbett or any particular investment.

Performance During Periods of Rising Inflation Expectations

 

Bar Chart

 

Time Period

1

2

3

4

5

6

7

9/23/2011 - 3/14/2012

6/28/2012 - 9/14/2012

1/13/2015 - 7/3/2015

2/11/2016 - 4/28/2016

8/2/2016 - 1/31/2017

6/20/2017 - 7/10/2018

3/18/2020 - 5/12/2021

Lord Abbett Inflation Focused Fund F

7.43%

5.83%

3.10%

5.36%

7.14%

4.66%

27.40%

Lord Abbett Bond Debenture Fund F

9.94%

5.47%

2.89%

9.41%

4.88%

3.41%

19.20%

Lord Abbett Short Duration Income Fund F

3.55%

2.18%

1.21%

2.53%

1.07%

1.34%

6.37%

Lord Abbett Floating Rate Fund F

6.73%

3.23%

2.78%

4.61%

4.33%

4.53%

13.15%

Barclays US TIPS Index

1.85%

2.46%

(0.83%)

2.89%

(0.90%)

2.04%

12.67%

Barclays US Aggregate Index

0.09%

0.68%

(1.41%)

1.15%

(2.75%)

(0.54%)

2.12%

Source: Bloomberg, Morningstar Direct. Data as of 12/31/2021. 

The performance data quoted reflect past performance and are no guarantee of future results. Fund performance is based on total return of Class F Shares at net asset value, including the reinvestment of all distributions, if any, but excludes the deduction of sales charges which are not applicable to Class F Shares. Returns for periods of less than one year are not annualized, but returns for periods greater than one year are annualized. Indexes are unmanaged, do not reflect the deduction of fees and expenses, and are not available for direct investment. Instances of high double-digit returns were achieved primarily during favorable market conditions and may not be sustainable over time. Inflation Expectations are based on the 5 yr CPI Swap Rate. "CPI" refers to the Consumer Price Index, which is used to measure inflation based on the price of goods and services, and in this case is used as the reference index for inflation swap transactions.

Potential Solutions to Consider

Whether preparing for an inflationary environment, or seeking a flexible fixed-income solution for a number of market outcomes, Lord Abbett offers several funds.

 

 

Dividend Yield

30 day Standardized Yield

Effective Duration

Inflation Focused Fund F (LIFFX)

2.31%

1.25%

1.77 years

Bond Debenture Fund F (LBDFX)

3.31%

2.72%

5.44 years

Short Duration Income Fund F (LDLFX)

2.28%

1.33%

1.65 years

Floating Rate Fund F (LFRFX)

3.63%

3.54%

0.26 years

Fund Total Return Performance

 

 

1 Year

3 Year

5 Year

10 Year

Inflation Focused Fund F (LIFFX)

10.48%

7.13%

4.26%

2.66%

Bond Debenture Fund F (LBDFX)

3.48%

8.15%

5.87%

6.56%

Short Duration Income Fund F (LDLFX)

0.99%

3.17%

2.69%

2.80%

Floating Rate Fund F (LFRFX)

5.36%

3.66%

2.95%

4.19%

Performance data quoted reflect past performance and are no guarantee of future results. Current performance may be higher or lower than the performance quoted. The investment return and principal value of an investment in the Fund will fluctuate so that shares, on any given day or when redeemed, may be worth more or less than their original cost. You can obtain performance data current to the most recent month-end by calling Lord Abbett at 888-522-2388 or referring to lordabbett.com. Fund performance is based on total return of Class F Shares at net asset value, including the reinvestment of all distributions, if any, but excludes the deduction of sales charges which are not applicable to Class F Shares. Returns for periods greater than one year are  annualized. Instances of high double-digit returns were achieved primarily during favorable market conditions and may not be sustainable over time. Indexes are unmanaged, do not reflect the deduction of fees and expenses, and are not available for direct investment.

Fund Expense Ratio Detail: Reflects expenses for the Fund's fiscal year-end and is subject to change. Fund expenses may fluctuate with market volatility. A substantial reduction in Fund assets (since its most recently completed fiscal year), whether caused by market conditions or significant redemptions or both, will likely cause total operating expenses (as a percentage of Fund assets) to become higher than those shown. Short Duration Income Fund F Share Fund Expense Ratio: 0.49%. Inflation Focused Fund F Share Fund Expense Ratio: 0.60%. Floating Rate Fund F Share Fund Expense Ratio: 0.70%. Bond Debenture Fund F Share Fund Expense Ratio: 0.68%.

F-Share: LIFFX

Inflation Focused Fund

The Fund seeks to deliver total returns that exceed the rate of inflation in the U.S. over a full inflation cycle and current income by combining investments in inflation-linked derivatives with a portfolio of fixed income securities.  

F-Share: LBDFX

Bond Debenture Fund

The Fund seeks to deliver high current income and long-term growth of capital by investing primarily in a variety of fixed income securities and select equity-related securities.
 

F-Share: LDLFX

Short Duration Income Fund

The Fund seeks to deliver a high level of current income consistent with the preservation of capital by investing in a variety of short maturity debt securities including, corporate bonds, U.S. government securities, and mortgage- and other asset-backed debt securities.
 

F-Share: LFRFX

Floating Rate Fund

The Fund seeks to deliver a high level of current income by investing primarily in a variety of below investment grade loans.


 

Insights on Inflation

Insight

Can the U.S. Dollar’s Strong Run Continue?

The U.S. currency has gained versus developed- and emerging-market counterparts as global central banks pursue differing policy agendas.

Insight

Inflation Could Change Everything for Asset Allocations and Yield Curves

Investors may have to rethink traditional allocation strategies as the long-standing relationship between equity and fixed-income returns has been upended.

Insight

Dealing with Volatility: Key Concepts for Investors

Staying invested, and resisting the urge to make large allocation change sin the dace of volatility, has helped investors weather drawdowns and geopolitical turmoil over time.

The Fund's portfolio is actively managed and is subject to change.

Bond Debenture Fund Risks: The Fund is subject to the general risks associated with investing in debt securities, including market, credit, liquidity, and interest rate risk. The value of your investment will change as interest rates fluctuate and in response to market movements. When interest rates fall, the prices of debt securities tend to rise, and when interest rates rise, the prices of debt securities are likely to decline. Longer-term debt securities are usually more sensitive to interest-rate changes; the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price. The Fund may make substantial investments in high-yield debt securities and may invest in senior loans which may be primarily below-investment-grade. High-yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in timely payment of interest and expenses. The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. Convertible securities are subject to the risks affecting both equity and fixed-income securities, including market, credit, liquidity, and interest rate risk. These factors can affect Fund performance. 

Inflation Focused Fund Risks: Although the Fund invests in inflation-linked investments, there is no guarantee that the Fund will generate returns that exceed the rate of inflation in the U.S. over time. During periods of deflation or when inflation is lower than anticipated, the Fund is likely to underperform funds that hold fixed income securities similar to those held by the Fund but do not hold inflation-linked investments. The Fund may invest substantially in inflation-linked derivatives and other types of derivatives and is exposed to the risk that the value of a derivative instrument does not move in correlation to the value of an underlying securities, market index or interest rate, or moves in an opposite direction than anticipated by the Fund. Investing in derivatives also involves greater liquidity, leverage, and counterparty risk. Because derivatives may involve a small amount of cash relative to the total amount of the transaction, the magnitude of losses from derivatives may be greater than the amount originally invested by the Fund. In addition, the Fund must also be able to correctly forecast market movements and other factors to be successful with its derivatives investments. The Fund is subject to the general risks associated with investing in fixed income securities, including market, credit, liquidity, and interest rate risk. These factors can affect the Fund’s performance.

Short Duration Income Fund Risks: The Fund is subject to the general risks associated with investing in debt securities, including market, credit, liquidity, and interest rate risk. The value of an investment will change as interest rates fluctuate and in response to market movements. When interest rates fall, the prices of debt securities tend to rise, and when interest rates rise, the prices of debt securities are likely to decline. Debt securities are subject to credit risk, which is the risk that the issuer will fail to make timely payments of interest and principal to the Fund. The Fund may invest in high yield, lower-rated debt securities, sometimes called junk bonds and may involve greater risks than higher rated debt securities. These securities carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. The Fund may invest in foreign or emerging market securities, which may be adversely affected by economic, political, or regulatory factors and subject to currency volatility and greater liquidity risk. The Fund may invest in derivatives, which are subject to greater liquidity, leverage, and counterparty risk. These factors can affect Fund performance. Past performance is no guarantee of future results.

Floating Rate Fund Risks: The Fund is subject to the general risks associated with investing in debt securities, including market, credit, liquidity, and interest rate risk. The value of investments in debt securities will fluctuate in response to market movements. When interest rates rise, the prices of debt securities are likely to decline, and when interest rates fall, the prices of debt securities tend to rise. The Fund may invest substantially in high yield, lower-rated securities. These securities carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Moreover, the specific collateral used to secure a loan may decline in value or become illiquid, which would adversely affect the loan's value. The Fund may invest in foreign or emerging market securities, which may be adversely affected by economic, political, or regulatory factors and subject to currency volatility and greater liquidity risk. The Fund may invest in derivatives, which are subject to greater liquidity, leverage, and counterparty risk. Certain of the Fund's derivative transactions may give rise to leverage risk. Leverage, including borrowing for investment purposes, may increase volatility in the Fund by magnifying the effect of changes in the value of the Fund's holdings. The use of leverage may cause investors in the Fund to lose more money in adverse environments than would have been the case in the absence of leverage. These factors may affect Fund performance.

This material must be accompanied or preceded by the Funds' current prospectuses or summary prospectuses. The summary prospectus and prospectus contain important information about the Fund, including the Fund's investment objectives, risks, charges, and ongoing expenses that an investor should read and carefully consider before investing. Please click here for the Funds' current prospectues or summary prospectuses.


Bloomberg Index Information:

Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg owns all proprietary rights in the Bloomberg Indices. Bloomberg does not approve or endorse this material, or guarantee the accuracy or completeness of any information herein, or make any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, shall not have any liability or responsibility for injury or damages arising in connection therewith.

The Bloomberg U.S. Treasury U.S. TIPS Index includes all publicly issued, U.S. Treasury inflation-protected securities that have at least one year remaining to maturity.

The Bloomberg U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. 

Glossary of Terms

Dividend Yield is a financial ratio that shows how much a mutual fund pays out in dividends each year relative to value with maximum sales charges and without sales charges. The dividend yield is calculated by annualizing the last dividend and dividing it by the fund’s net asset value with maximum sales charges and without sales charges.

The 30-Day SEC Yield represents net investment income earned by a fund over a 30-day period. It is expressed as an annual percentage rate using a method of calculation adopted by the Securities and Exchange Commission (SEC). Yields for other share classes will vary.

Effective Duration - The change in the value of a fixed income security that will result from a 1% change in interest rates, taking into account anticipated cash flow fluctuations from mortgage prepayments, puts, adjustable coupons, and potential call dates. Duration is expressed as a number of years, and generally, the larger a duration, the greater the interest-rate risk or reward for a portfolio’s underlying bond prices. Where applicable, certain investments, such as common or preferred stock, convertible bonds and convertible preferred stock, ETFs, ADRs, and CPI swaps and related futures, are excluded from these calculations. The data provided is based on a weighted average of the securities held in each fund

Forward Inflation Rate: Measures the expected inflation rate (on average) over the five-year period that begins five years from today.

Real Rate of Return: Real rate of return is the annual percentage of profit earned on an investment, adjusted for inflation. 

Fed Funds Rate: Interest rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis.

This material has been prepared exclusively for use by analysts, institutional investors (as such term is defined in various jurisdictions) and their consultants, registered investment advisors, broker-dealers, and sponsors of plans with a minimum of 100 participants. It is not intended for, and should not be used with, small plan sponsors, plan participants, retail investors or the public in written or oral form or for any other purpose. 

 

Ask about our Inflation Focused Solutions.

Financial professionals: 201‑827‑7998.

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